Why do fuel costs fluctuate?
Retail fuel costs are principally affected by fossil oil prices and the level of gasoline source relative to gasoline demand. Strong and increasing demand for gasoline and other fossil fuel products in the United States and the remainder of the world can place intense pressure on available sources.
Gasoline costs tend to increase once the available source of gasoline decreases relative to real or expected gasoline demand or consumption. Gasoline costs can change quickly if something disrupts crude oil sources, refinery operations, or gasoline pipeline deliveries. Even when crude oil costs are stable, gasoline costs fluctuate due to seasonal changes in demand and gasoline specifications.
Crude oil and gasoline costs reached record levels in 2008
World crude oil costs reached record levels in 2008 as a result of high worldwide oil demand relative to supply. Important growth in demand in China, the Middle East, and Latin America, combined with market uncertainty in world supply, contributed to the run-up in oil costs and, in turn, to record-high gasoline costs in the United States.
Seasonal demand and specifications for gasoline
Historically, retail gasoline costs tend to gradually rise in the spring and peak in late summer once people drive more frequently. Gasoline costs are typically lower in winter months. Gasoline specifications and formulations additionally change seasonally.
Environmental regulations require that gasoline sold in the summer be less prone to evaporate during warm weather. This requirement means that refiners need to replace cheaper but more evaporative gasoline components with less evaporative but costlier components. From 2000 through 2018, the average monthly price of U.S. retail regular-grade gasoline in August was about 35 cents per gallon higher than the average price in January.
Gasoline inventories provide a cushion
The source of fuel is largely driven by crude oil supply and refining, imports of gasoline, and gasoline inventories (stocks). Stocks are the cushion between major short-term source and demand imbalances, and stock levels can have a big impact on gasoline costs.